Think if you had been one of the original investors in Microsoft, Google, or Wal-Mart. Most investors dream about what it would be like to get in at the beginning of a major company whose brand name will become a household name globally. Investing in startup companies can be highly rewarding. However, it is also an enormous risk. Statistically, most small businesses fail. If you choose the wrong company, you could lose your entire investment. For reason, investments in startup companies are not for the average Joe who has only a small amount of money to save up for retirement. Also, this type of investment is a long-term in nature. Companies can take years to become established and able to provide returns on your investment.
No, investing in these companies is for investors with an amount of cash to invest that will not affect them financially if it is lost entirely. All investments come with risk. Different types of this kind of company investing have different levels of risk involved. Primary investing is most risky, and, when successful, the most rewarding. Primary investing is when you are the one coming up with the business idea and starting the company. Though this can provide the most return on investment, it is also the most time consuming and intensive method.
Investing in these companies as an angel investor means that you give other people who are starting up a business some money in exchange for a percentage stake in the company. You can be the sole angel investor or the company can have a number of angel investors. When you choose this route, it is important to choose a company in an area of your own expertise. Understanding the industry thoroughly helps you ascertain whether or not the idea will be successful or if there are pitfalls the business owner is not considering. Investing in areas you have knowledge and experience in leverages your ability to make good decisions, giving you a greater chance of picking a winner.
For someone who wants to invest in these type of companies but does not want to spend the time and energy in the research process, there are venture capitalist businesses that provide this service. Venture capitalist companies research and invest in numerous startup companies, pooling your investment with many others. This offers a diversification that lessens the amount of risk involved. Some of these companies have extensive experience in researching and investing in startup companies and excellent track records for their investors.